Best UK mortgage deals of the week

Pedro Goncalves

Mortgage rates below 4% are back on sale in the UK as Nationwide (NBS.L) is now offering a 3.99% deal for new customers looking to borrow up to 60% of the property's value. NatWest (NWG.L) and Virgin Money (VMUK.L) have also cut their rates as the Bank of England’s (BoE) decided to drop the interest rate to 5%.

Overall, the average rate on a two-year fixed deal this week stood at 5.94%, unchanged from last week, while rates for a five-year deal came in at 5.29%, lower than previous 5.32%, according to figures from Uswitch.

Nick Mendes of broker John Charcol said: “We can anticipate the downward trend in fixed-rate costs to continue into next year, as markets price in further bank rate cuts and lenders use every opportunity to stay ahead of the competition by actively passing on reductions in swaps.”

He believes fixed rates could go well below 4% by 2025.

“With this in mind a 3.5% five-year fixed rate could be within reach by early next year,” he said.

The Bank of England has cut interest rates to 5% at its August Monetary Policy Committee (MPC) meeting, the first reduction of the UK’s base rate in four years.

In a finely balanced decision, five committee members voted in favour of cutting rates, versus four who preferred to keep them unchanged.

The UK’s second biggest mortgage lender, NatWest, is cutting the cost of their mortgage deals by up to 0.15bps.

Meanwhile, Virgin is slashing up to 0.31bps off their offerings, and has also launched a number of exclusive deals for those looking to remortgage.

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Aaron Strutt, director at Trinity Financial, said: “NatWest is closing the gap between its competitors with these latest price reductions. The pricing between the cheapest purchase and remortgage rates seems to be getting bigger again.”The last time a five-year fixed-rate deal priced at below 4% was available was at the end of February.

Strutt said lenders were offering lower rates to buyers because they are “still trying to stimulate the property market” and they “do not need to work quite so hard to get remortgage business”.

Meanwhile, young homebuyers are being forced to gamble with their retirement prospects by taking on ultra-long mortgages. In the last three years, researchers have noted a surge in mortgage terms that see homeowners locked into mortgages running beyond the state pension age. This is particularly rife among those under 30, data from the BoE highlighted.

However, slowing inflation is likely to be well-received by homeowners and buyers pinning their hopes on a summer interest rate cut.

Inflation has fallen back to the BoE’s 2% target for the first time in nearly three years and it stayed there in June.

Borrowers have long said goodbye to HSBC’s (HSBA.L) 3.99% for a five-year deal. The cheapest deal at the lender’s table is now 4.14% for five years.

Looking at the two-year options, the lowest rate comes in at 4.54% with a £999 fee, lower than last week's deal.

Both cases assume a 60% loan to value (LTV) mortgage, meaning buyers need to have at least 40% for a deposit.

The lender offers 95% LTV deals, meaning you only need to save for a 5% deposit. The rates are much higher, however, with a two-year fix coming in at 5.89% or 5.35% for a five-year fix.

This is because the rate someone can get will be determined by their financial situation and the size of their deposit. The larger the deposit, the lower the LTV, allowing buyers to access better deals because lenders consider them less risky.

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NatWest has lowered the cost of its two and five-year fixed rates for residential purchase and remortgage. It is offering two-year fixed rates for purchase from 4.48% with a £1,495 fee (at 60% loan to value). The five-year equivalent purchase rate is now 4.03%.

For remortgage borrowers, NatWest is offering two-year fixed rates from 4.54% with a £1,495 fee, or from 4.24% over five years. Both deals require borrowers to have at least 40% equity in the property (60% LTV).

The bank has deals at slightly higher rates with a lower fee. For example, the five-year fixed rate for remortgage is at 4.29% with a £995 fee (60% LTV).

At Santander (BNC.L) a five-year fix comes in at 4.13%, assuming you have a 40% deposit. Lower than last week’s 4.20%.

For a two-year deal, the cheapest customers can get is 4.51% also lower than last week’s 4.58%.

Barclays (BARC.L) has at five-year deal for prospective homebuyers with a 40% deposit (60% LTV) that comes in at 4.04%, with an £899 fee, lower than last week’s 4.09%.

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When it comes to two-year mortgage deals, the lowest you can get is 4.42%, also lower than the previous 4.52%.

Nationwide now offers a five-year fix for purchase at a market-leading 3.99% — a 0.19 percentage point cut on the previous deal at 4.18%.

The deal comes with a £1,499 fee and requires a 40% deposit. It also only applies to loans of £300,000 or more.

Nationwide offers a two-year fixed rate for home purchase at 4.65% with a £999 fee — also for borrowers with a 40% deposit.

Other deals include

  • Five-year fixed rate at 85% LTV with a £999 fee at 4.55%

  • Two-year fixed rate at 85% LTV with a £999 fee at 4.95%

  • Five-year fixed rate at 60% LTV with a £1,4992 fee at 4.34%

  • Five-year fixed rate at 60% LTV with a £999 fee at 4.39%

Halifax, the UK’s biggest mortgage lender, offers a two-year fixed rate of 4.46% with a £999 fee for first-time buyers.

The lender, owned by Lloyds (LLOY.L) has a five-year rate going for 4.06% (also 60% LTV), lower than last week’s 4.18%.

It also offers a 10-year deal with a mortgage rate of 4.93%. All unchanged from last week’s offers.

As only one big lender is offering under 4% mortgage rates, it makes it easy to see that Nationwide currently has the cheapest deal on the market.

However, its 3.99% deal requires a 40% deposit, so you will need a hefty amount of cash upfront to secure the deal. Halifax is close, with a 4.06% deal for a five-year fix.

Strutt said: “More lenders are lowering their rates at the moment to undercut their competitors. This is good news for borrowers planning to get on the property ladder soon or remortgaging homeowners keen to minimise the payment shock.”

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Given the average UK house price sits at £261,962, a 40% deposit equates to about £105,000.

Borrowers would need to spread their home loans over more than 70 years to afford the same mortgages on offer just two years ago banks have said.

There is also a new mortgage product promising to help first-time buyers get on the property ladder with just a £5,000 deposit. Yorkshire Building Society is offering a deal that enables first-time buyers across England, Scotland and Wales with a £5,000 deposit to purchase a property valued at up to £500,000.

This means first-time buyers could get on the ladder with as little as a 1% deposit.

Also, lender April Mortgages is now offering buyers the chance to borrow up to six times their income on loans fixed for five to 15 years, from a deposit of 5%. Both those buying alone and those buying with others can apply for the mortgage.

The company, which is part of an independent Dutch asset manager DMFCO has interest rates starting at 4.99%, with an application fee of £195.

Skipton Building Society has also said it will allow first-time buyers to borrow up to five-and-a-half times their income, in an effort to support more borrowers on to the housing ladder.

Mortgage holders and debt borrowers have been forced to pay record-high repayments in recent years due to the UK's hiked base rate being passed onto customers by banks and building societies. Until now, the consensus was that interest rates have peaked and that 2024 will see rate cuts as inflation eases.

However, even with inflation falling to target, traders are now pricing in just one or two rate cuts, compared to expectations of five cuts at the start of 2024.

Matt Smith, Rightmove’s mortgage expert, said: “The highly anticipated rate cut has finally arrived, and while those looking to take out a mortgage soon shouldn’t expect to see drastically lower mortgage rates, we would expect the downward trend we’ve started to see continue.

"This sets us up for hopefully further cuts to come, and when we have seen further reductions to the Base Rate, people should really start to see the impact. However, it’s important to keep in mind that mortgage rates are widely expected to eventually settle at higher levels than previously, with the market view that the base rate may eventually fall to about 3.25%."

About 1.6 million existing borrowers have relatively cheap fixed-rate deals expiring this year.

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